The SEC Wraps a Small-Biz Gift

Courtesy of a rule change, about 1,400 additional small companies now are eligible to make shelf offerings.Sarah Johnson, CFO.com | USDecember 11, 2007

Smaller public companies now have another avenue for raising capital following a rule change by the Securities and Exchange Commission.

The four SEC commissioners have voted to amend the eligibility requirements for two securities registration forms, allowing smaller businesses to make shelf registrations — register public offerings up to two years before their issuance — à la their large brethren. The change will make it "much easier for smaller public companies to access the public capital markets," said SEC chairman Christopher Cox.

Before Tuesday's vote, companies with a public float below $75 million have not been able to register primary securities under forms S-3 and F-3, and in most cases were limited to using PIPEs (private investments in public equity) instead for raising capital. Up to 1,400 companies could take advantage of the change.

What's the hitch? Shell companies and businesses considered shell companies during the previous 12 months are not eligible. Neither are chronically late filers and companies not listed on a national securities exchange.

Under the revision, companies are limited to offering securities worth no more than one-third of their public float. That marks a change from the SEC's original proposal for the rule change, which had limited primary offerings to only 20 percent of a company's public float.

Commending the change, commissioner Paul Atkins noted that small companies have limited opportunities to raise capital by other means. He said he is hoping the SEC will consider expanding its eligibility requirements even further by extending it to companies on the over-the-counter securities markets.